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RBI mandates Borrowers with Exposure of Rs 5cr and above to obtain LEI; UCBs to Eliminate Honorary Positions within 1 year

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RBI asks borrowers with total exposure of ₹5 crore

The Reserve Bank of India (RBI) mandates non-individual borrowers with aggregate exposure of Rs 5 crore and above from Banks and Financial Institutions (FIs) should obtain Legal Entity Identifier (LEI) codes.

  • These directions are issued under sections 21, 35A and 56 of the Banking Regulation (BR) Act, 1949, sections 45JA and 45L of the RBI Act, 1934, section 30A of the National Housing Bank (NHB) Act, 1987 and section 6 of the Factoring Regulation Act, 2011.
  • Here term ‘Exposure’ include all fund based and non-fund based (credit as well as investment) worth.

What is LEI?

It is 20-digit unique code to identify parties to financial transactions worldwide. It improves the quality and accuracy of financial data systems for better risk management

Timeline for obtaining LEI by borrowers

Total ExposureLEI to be obtained on or before
Above Rs 25 croreApril 30, 2023
Above Rs 10 crore, up to Rs 25 croreApril 30, 2024
Rs 5 crore and above, up to Rs 10 croreApril 30, 2025

Key Points:

i.Borrowers who fail to obtain LEI codes from an authorized Local Operating Unit (LOU) will not be sanctioned any new exposure. They will also not get renewal/enhancement of any existing exposure.

ii.Exempted entities from LEI: Departments/Agencies of Central and State Governments (not Public Sector Undertakings registered under Companies Act or established as Corporation under the relevant statute) are exempted from this provision.

RBI directs UCBs to eliminate honorary positions within one year 

RBI in exercise of its powers conferred under Section 35A and Section 36(1)(d) of the BR ACT, 1949 barred Urban Cooperative Banks (UCBs) from creating honorary position or title such Chairman Emeritus and Group Chairman at the board level.The RBI has directed these banks to eliminate such positions within one year.

Reason behind this:

Such positions create conflicts of interest as well as creation of a shadow authority impeding effective and independent functioning of the legally constituted board.

Recent Related News:

As per RBI’s data on ‘Sectoral Deployment of Bank Credit – December 2021’ the

bank’s non-food credit registered a growth of 9.3 percent (on a year-on-year (y-o-y) basis) in December 2021 as compared to 6.6 percent in December 2020.

About Reserve Bank of India (RBI):

i.The Reserve Bank of India was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934.

ii.The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.

iii.Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.